• European bourses kicked the week off on the backfoot but have since trimmed losses; US equity futures are mostly softer but off lows.
• DXY extends on Friday's gains with the index back above the 113.00 mark, AUD lags and USD/CNH topped 7.1500.
• Bunds and US Treasuries are off best levels amidst hawkish ECB rhetoric and an upturn in overall risk sentiment whilst Gilts are still deeply underwater.
• Explosions were reported across several Ukrainian cities on Monday morning including Kyiv, Lviv, Dnipro and Ternopil.
• Looking ahead, highlights include speeches from Fed’s Evans & Brainard, ECB’s Lane, US Columbus Day with CME floor trade closed but will be a regular session elsewhere.

10th October 2022

LOOKING AHEAD

• Speeches from Fed’s Evans & Brainard, ECB’s Lane, US Columbus Day with CME floor trade closed but will be a regular session elsewhere.
• Click here for the Week Ahead preview.

EUROPEAN TRADE

EQUITIES

• European bourses have kicked the week off on the backfoot as the negativity from last Friday has continued into this week.
• Sectors in Europe are predominantly softer with the exception of Retail and Telecoms. To the downside, Consumer Products, Tech and Utilities lag.
• Stateside, futures are softer across the board but to a lesser extent than European peers.
• Click here for more detail.

FX

• DXY extends on Friday's gains with the index back above the 113.00 mark with a current intraday peak of 113.31, with G10s softer vs the USD to varying degrees.
• EUR/USD tested 0.9700 to the downside from a high just over 0.9750 and retreated further from decent option expiry interest spanning 0.9800-55 (around EUR 2.8bln).
• AUD sits as the current laggard with China's sub-50 PMIs overnight adding to the pressure, whilst USD/CNH topped 7.1500.
• PBoC set USD/CNY mid-point at 7.0992 vs exp. 7.1215 (prev. 7.0998).
• Turkish President Erdogan said the CBRT will keep cutting rates every month for as long as he is in power, according to Reuters.
• Click here for more detail.

Notable FX Expiries, NY Cut:

• EUR/USD: 0.9800-10 (1.72BN), 0.9845-55 (1.12BN), 0.9875 (556M), 0.9950 (709M),
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FIXED INCOME

• Bunds and US Treasuries are off best levels amidst hawkish ECB rhetoric and an upturn in overall risk sentiment that has perked up hitherto weak Italian bonds.
• Gilts are still deeply underwater with the BoE remaining on course to end its temporary buy-back auctions at the end of the week and is switching to liquidity support via expanded collateral repos.
• Click here for more detail.

COMMODITIES

• WTI and Brent front-month futures are modestly softer after settling higher by over USD 4.00/bbl and USD 3.50/bbl respectively on Friday.
• French petrol station woes reportedly deepened as strikes continued and the French Energy Ministry stated that 29.7% of service stations were experiencing supply difficulties with at least one fuel product as of 3pm on Sunday vs 21% of service stations on Saturday. Furthermore, TotalEnergies (TTE FP) called on the responsibility of workers to ensure that the country is well supplied with fuel and proposed to bring forward the compulsory annual negotiations to October subject to the end of blockades, according to Reuters.
• Spot gold has been ebbing lower in tandem with strength in the DXY, with the yellow metal’s 21 DMA around 1,678/oz.
• Base metals are mixed but LME copper and Chinese iron ore futures buck the trend.
• Kumba Iron Ore declared a force majeure due to strike action; export sales will be impacted by around 120k tonnes per day.
• Click here for more detail.

NOTABLE EUROPEAN HEADLINES

• UK Cabinet Office Minister Zahawi said it is extremely unlikely that Britain will have planned power cuts over the winter, according to Reuters.
• UK PM Truss is prepared to listen to Conservative critics who oppose proposals to raise benefits by less than inflation, according to Telegraph sources.
• Retailers in London’s West End warned that the capital faces a consumer growth slowdown with footfall in London’s main shopping area remaining about a fifth lower than pre-pandemic levels, according to research by New West End Company cited by FT.

NOTABLE EUROPEAN DATA

• BoE Gilt market notice: As previously announced, the Bank plans to end these operations and cease all bond purchases on Friday 14 October.
• BoE is launching a temporary expanded collateral repo facility; enables banks ease liquidity pressure facing their client LDI (Liability-driven investment) funds via liquidity insurance operations.
• ECB's Villeroy says the ECB is engaged in lowering inflation to 2% in 2-3 years from now; ECB is far from reaching its 2% inflation target.
• ECB's Knot says markets appear to underestimate the upward risks in the inflation outlook. ECB will need to take significant interest steps again this month but too early to say how large the steps will need to be. Knot said it will be at least two meetings before quantitative tightening.
• ECB's Centeno says normalisation of monetary policy is absolutely needed and desired.
• ECB and PBoC extend bilateral EUR-CNY FX swap arrangement; ECB says has a max size of EUR 45bln and CNY 350bln.
• UK to publish medium-term fiscal plan OBR forecast on October 31st, according to the Treasury Select Committee head.

NOTABLE US HEADLINES

• EU is urging the US to rethink its ‘discriminatory’ provisions in the new flagship green legislation amid concerns in Europe that the rules could prompt European manufacturers to move production to the US, according to FT.
• Tesla (TSLA) sold a record number of China-made vehicles in September with 83,135 units in wholesale, according to the CPCA cited by Reuters.

CRYPTO

• Bitcoin is on a softer footing and remains under the USD 19,500 mark whilst Ethereum holds onto 1,300 status.

GEOPOLITICS

RUSSIA-UKRAINE

• Ukrainian media reported a large explosion at the Kerch bridge in Crimea where a fuel tank was on fire at one of the sections of the bridge, while there were comments from a Ukrainian presidential adviser who called the bridge explosion ‘the beginning’ and said ‘everything illegal must be destroyed’ but did not directly claim responsibility, according to Reuters.
• Russian President Putin described the Crimea bridge explosion as an act of terrorism which Ukraine is responsible for and he ordered tighter security for the Crimea bridge, as well as the infrastructure supplying electricity and natural gas to Crimea, according to Reuters and Interfax.
• Russian investigative committee head said the blast on the Crimea bridge was prepared by Ukrainian special services, according to Reuters. It was also reported that Russian government spokesperson Peskov said it is wrong to consider the terrorist attack on the Crimean bridge as a reason for the possible use of nuclear weapons, according to Ria Novosti.
• White House national security spokesman Kirby said US President Biden’s “Armageddon” warning was not based on any new intelligence and reflects the very high stakes that are currently in play. Kirby also stated that Russian President Putin started the war and could end it simply by moving troops out of Ukraine, while he added the US will continue offering security assistance to Ukraine, according to The Guardian and Reuters.
• Explosions were reported across several Ukrainian cities on Monday morning including Kyiv, Lviv, Dnipro and Ternopil. Explosions were also reported near Ukrainian President Zelensky's office in Kiev, according to Al Arabiya citing Russian press.
• Ukrainian President Zelensky says Russia used Iranian drones in Monday's attacks on Ukraine, according to AFP.
• Belarus and Russia to form a joint regional grouping of troops, according to Belta citing Belarussian President Lukashenko.

CHINA-TAIWAN

• Taiwan President Tsai said they must stand up for democracy and prepare prudently and sufficiently to respond to any possible contingency, while she added that they are sending a message to the international community that Taiwan will take responsibility for its self-defence. Tsai also stated that they want to make clear that armed confrontation is absolutely not an option for both sides and they look forward to the gradual resumption of the healthy and orderly cross-strait people-to-people exchanges, thereby easing tensions in the Taiwan Strait, according to Reuters.
• China's Foreign Ministry, responding to Taiwan's President's national day speech, says Taiwan is an inseparable part of Chinese territory and China will never leave any space for separatists or independence.

OTHER

• North Korea fired two short-range ballistic missiles from the Munchon area over the weekend which fell outside of Japan’s exclusive economic zone, while South Korea stated that the latest missile launches are a serious provocation that harms peace, according to Yonhap and Reuters.
• North Korea conducted tactical nuclear operational training during September 25th - October 9th and leader Kim oversaw tactical nuclear military training, while Kim said they will continue to strengthen nuclear operations going forward, according to Yonhap and KCNA.
• Japan and the US conducted a joint military exercise involving the aircraft carrier USS Ronald Reagan, according to Japan’s Defence Ministry cited by Reuters.
• China Ministry of Commerce says it firmly opposes US chip export controls; urges US to stop its wrongdoings immediately.

APAC TRADE

EQUITIES

• APAC stocks were negative in a holiday-thinned start to the week with market closures in Japan, South Korea and Taiwan, while the region digested a contraction in Chinese Caixin PMI data and the recent stronger-than-expected US jobs data which paves the way for the Fed to continue with its hawkish normalisation.
• ASX 200 was led lower by gold miners and tech stocks after the post-NFP rise in yields and with risk appetite also not helped by a deterioration in the AIG Services Index.
• Hang Seng and Shanghai Comp. weakened with Hong Kong pressured by notable losses in the tech sector after the US recently announced new curbs on exports to China on certain tools essential for high-end chip production. Furthermore, sentiment was also dampened following the PBoC’s largest weekly net drain in eight months and after Chinese Caixin Services and Composite PMIs fell into contraction territory, although losses in the mainland are somewhat cushioned following the return of participants from a week-long holiday.

NOTABLE APAC HEADLINES

• PBoC injected CNY 17bln via 7-day reverse repos for CNY 594bln net daily drain on Saturday and injected CNY 2bln through 7-day reverse repos with the rate kept at 2.00% on Sunday which resulted in the largest net weekly drain in eight months. PBoC also injected CNY 2bln via 7-day reverse repos with the rate kept at 2.00% on Monday, according to Reuters.
• PBoC noted that it issued CNY 400bln via MLF during September and outstanding MLF loans fell to CNY 4.55tln at end-September vs. CNY 4.75tln at end-August, while it issued a total of CNY 969mln via SLF in September and its outstanding PSL was at CNY 2.65tln at end-September vs CNY 2.54tln at end-August, according to Reuters.
• PBoC survey found that 53% of bankers believe Q3 monetary policy is appropriate and 45.8% believe Q3 monetary policy is loose, according to Reuters.
• China was placed on high alert amid increases in COVID cases ahead of the Communist Party Congress, according to FT.
• Chinese Foreign Ministry said the US is abusing trade measures to maintain technological hegemony following the recent announcement of controls targeting Chinese chip manufacturers, according to Reuters.
• China's Shanghai requires arrivals to take three COVID tests within three days, according to Bloomberg.

DATA RECAP

• Chinese Caixin Services PMI (Sep) 49.3 (Prev. 55.0)
• Chinese Caixin Composite PMI (Sep) 48.5 (Prev. 53.0)
• Australian AIG Services Index (Sep) 48.0 (Prev. 53.3)